Makkah, the largest hospitality market in Saudi with 27,000 quality rooms, faces unlimited global demand for hotel and other tourist facilities, according to a report by JLL, a real estate investment and advisory firm.

Religious tourism currently contributes 2-3 per cent of Saudi’s gross domestic product and with Saudi 2030 vision; there are plans to roughly double the capacity to accommodate both Umrah and Hajj visitors to around 15 million and 5 million respectively by 2020.

Mr Jamil Ghaznawi, National Director and Country Head of JLL Saudi Arabia said: “Increasing religious tourism in line with ‘Saudi Vision 2030’ will create huge opportunities in the retail, hotel and broader accommodation sectors in Makkah. The long term prospects for the hotel sector are extremely positive given the reliance on accommodation providers to support the global unlimited demand of religious pilgrims to Makkah.”

“The success of the Saudi Government’s plans to expand the number of religious visitors also relies heavily on the ability to address transportation capacity. While there have been significant investments to improve the networks serving Makkah, many of the projects have been affected by the stringent 2016 budget.”

It is estimated that around 75 per cent of the demand from pilgrims is accommodated in hotels, with the remaining 25 per cent in other forms of accommodation. Around 60 per cent of the current stock of hotel rooms are classified as ‘budget accommodation’ a much higher proportion than in other cities in Saudi.

Hotels in Makkah typically achieve 100 per cent occupancy during the Hajj period and the Umrah high season. The highly seasonal nature of demand results in occupancies falling to just 30 – 40 per cent during off peak seasons immediately after Ramadan and Hajj.

Although there is a great opportunity for Makkah’s real estate sector to flourish from increasing the number of pilgrims, there is currently a restraint on the number of pilgrims due to a cap on the number of quotas for each country. This has had a negative impact on the performance of Makkah’s hotels and pilgrim accommodation but the quotas are expected to be relaxed upon completion of major infrastructure improvements in 2017 and 2018.

The traditional residential sector continues to suffer from a shortage of affordable homes and poor quality infrastructure projects. Compared to other major cities in Saudi, the office sector remains a relatively minor market which is reflected in lease rates which are considerably lower when compared to Jeddah and Riyadh.